this vast solar power plant being built in the
remote arizona desert is part of the biggest economic rescue effort in history while the cost
of action will be great i can assure you that the cost of inaction will be far greater with the
economy still struggling the american government is shelling out three-quarters of a trillion
dollars to try to haul the country out of trouble and in britain billions are being spent to
accelerate growth even by a government determined to cut borrowing is this really the right road to
take after the crash in 2008 the world seemed to be running out of cash but rather than cut back
governments spent huge amounts of money they didn’t have why on earth would they do that it all
goes back to the extraordinary ideas of this man the british economist john maynard keynes quite
simply he changed the world i think it is true that he’s one of the great figures of the 20th
century and in many ways of the 21st century keynes thought capitalism was brilliant but left
to its own devices it could also go seriously wrong it was up to governments to step in to get
the economy back on track he was the archetypal man in whitehall westminster or cambridge who
thought he knew best keynes has never been more relevant or controversial than he is today
because for the first time since the 1930s the problems he was grappling with then bank
failures international crises the possibility of a long economic slump we’re facing too in this
series i’ll tell you about the lives and thoughts of three extraordinary men with radically
different views karl marx friedrich hayek and tonight keynes they all saw that taming the
growing power of money was the crucial challenge for the modern world all three were intellectual
giants whose ideas have been a hidden force shaping world events changing the lives of every
one of us but i think they have something special to tell us right now because they more than
anyone taught us the awesome power of money the good that markets and capitalism could do and the
enormous trouble they could cause i think they’d know exactly what we’ve been going through i
want to know can they help us find a way out the quiet hills of northwest england for me
a chance to experience economics in action i’m getting to try out rally cars
competing in the tour of cumbria the sponsors pirelli are getting a slice of
the government’s 2.4 billion pound fund to help regional growth and employment they want
to show me what the company is really all about pirelli is one of the world’s
biggest tire makers it’s been manufacturing in britain for almost a century it wants to develop some of its top ranges
and beef up research and development brilliant absolutely but the
sums hadn’t been adding up this factory is one of
carlisle’s biggest employers there are about 750 workers here producing
10 000 tires a day not so long ago people worried the company would
shift production overseas to cut costs a two million pound government grant has
persuaded pirelli to invest in britain instead when we have a major investment the confidence
in people to spend the wages is increased and the local economy benefits and it’s not only
pirelli employees we have hundreds of suppliers and contractors who depend on this factory and
they benefit also when pirelli increases its spend and also they recycle that money into the
local economy it might seem surprising a handout to a private company when the government’s
so worried about the mounting national debt now more than a trillion pounds but keynes
was quite clear there are times when we need to step in to make capitalism work for us even
when that means spending money we don’t have what cain said was that it was possible for
government to come in and make markets work better so one way that it’s often put is that
kings save capitalism from the capitalists though for kane’s critics it’s mistakes by
governments that really cause the trouble when we find instances of economies being
seriously knocked out of equilibrium it’s generally been as a result of government
policy mistakes but keynes didn’t really make a convincing case that even when an
economy was knocked out of equilibrium that government action could do better than
allowing the economy to essentially mend itself so keynes was either an economic savior or the man
who led us all astray but there’s no argument that he changed our world and the way we think about
it he was at the center of the debate 80 years ago and he’s back there again today a great weight is
lifted from us this is the only known film of kane speaking there’s no danger of the exchange falling
too far there’s no danger of a serious rise in the cost of living it’s a broadcast about economics
how to share out the world’s resources british trade but for keynes this was no dry science it
was about changing the world for the better i think if we’re looking at britons who made
a real difference in the 20th century the most obvious name will be winston churchill
john maynard keynes is really not far behind kane spent years in this house in london
developing ideas that helped shape some of the most important events of the past century helping
to save capitalism from the great depression funding the war against the nazis and building a
new post-war economic order that helped pave the way for decades of growth and rising prosperity
what’s really extraordinary about keynes from a modern perspective was his access despite being
so unconventional in his life and especially in his views he had the ear of anyone who mattered
presidents and prime ministers all listened to what he had to say that it was only after his
death that everyone started taking his advice i applied to university in 1965 and the whole
intellectual climate of the time not just in terms of economics but politics was driven by the
idea that keynes had solved the economic problem by the late 1960s kane’s ideas were built into
the fabric of pretty much every western economy but he didn’t seem to have an answer
to the high inflation of the 1970s after that keynesian fine-tuning was out and
free market ideas gradually took over but when the world got into serious bother in 2008 keynes
was back it’s ideas that that uh mobilized the world uh on right and left good and bad and keynes
was the author of in my judgment the best suite of ideas about how to think about capitalism that has
been and if you think that counts then he counts so what are these great ideas that have
dominated our economic landscape for so long and where exactly did they come from keynes was born at the height
of the british empire in 1883 to middle class parents who sent him to
eaton and cambridge so far so conventional but at university he fell in with a very
unconventional crowd the bloomsbury set as a young man he spent a lot of time here at
their country retreat charleston in sussex it was a kind of commune for artists and writers
and the one economist they did see themselves as very different to an extent they were tinged
by that rather indefinable concept bohemian they were very ahead of their time they
were pioneers about sexual behavior they were pioneers on the political front they were
pioneers in many aesthetic fields in writing and um and in the arts the
blues group allowed him to step outside of the box and to think that the
unthinkable and that breadth of intellect that he had allowed him to leap off cliffs with
the confidence that there was no bottom keynes immersed himself in the cultural world
all his life collecting paintings fine books even founding the arts theatre here in cambridge
perhaps it’s no coincidence that a man with such wide ranging interests should have the vision
to develop a radically new approach to economics keynesianism shorthand today for
government efforts to control the economy keys was born nearly 130 years ago into
a confident age science had been marching forward in medicine and engineering every
year extending what was humanly possible but there was one domain where science had barely
begun economics the world of money and markets if we could tame capitalism we could really shape
our destiny keynes fundamentally believed that but he also understood maybe better than some of his
followers just how difficult that was going to be greek fury at the austerity they feel has been
imposed on them by their european neighbors for keynes this might feel a bit familiar
he saw it firsthand the disaster that can come from stronger countries
dictating economic terms to the weak that helped him form his first big idea in an interconnected world when you beggar
your neighbor you might well beggar yourself it was an idea forged by
the horrors of world war one true to his bloomsbury values keynes
didn’t want to fight in the war but he was willing to use his
economic brilliance to help finance it kane’s job at the treasury was to help channel
loans from america to other countries in the alliance his time here brought home to him
how integrated the global economy had become isolation just wasn’t an option the
economic fate of entire populations might come to depend on events
hundreds even thousands of miles away once the war was over keynes could
see how hatred of the defeated germans might lead the victors to make a terrible mistake at the end of the first world war there was a
great deal of obviously public hostility towards germany i mean it had been a disastrous war on
both obviously in terms of lives and casualties but economically too i think there was quite a
strong feeling that germany must be made to pay at the palace of versailles where the peace
treaty was signed british prime minister lloyd george and his french and american allies
relished their victory keynes was a member of the british delegation here but against his
advice germany was ordered to pay everyone’s bills for the damage and suffering caused by the
war how could germany afford to repay that debt you need an economy that is running to produce
money to produce wealth and then you can repay you cannot repay without of nothing keynes was so outraged that he resigned from the
treasury and retreated to his room in charleston to write his first major book the
economic consequences of the peace brilliantly written it became a best seller
though some said with his sympathy for the germans he should be awarded an iron cross he says if we
aim deliberately at the impoverishment of central europe vengeance i dare predict will not limp the
key point for me is he didn’t just think it was immoral the treaty or unfair he thought it
was stupid he thought a desperate germany wasn’t going to keep the peace in europe and it
certainly wasn’t going to contribute to prosperity wasn’t going to buy goods from britain and
help britain recover from the war something he kept coming back to one way or another
throughout his life we’re all in it together the versailles treaty brought one of
the great powers of europe to its knees as keynes predicted the german
economy descended into chaos their debts were so impossibly large they
ended up printing the money to pay the bills which quickly led to hyperinflation
and a thoroughly worthless currency hyperinflation didn’t just destroy the economy it
destroyed the fabric of german society people’s hopes too there are stories about people taking
out all of their savings to buy a single postage stamp for a suicide letter when keynes warned that
the versailles treaty would bring a catastrophe here even his admirers might have thought he was
exaggerating and they didn’t think that for long just 14 years after the treaty of
versailles hitler came to power world war ii wasn’t far away as keynes had predicted the price
of getting economic relations wrong was calamity keynes foresaw that the reparations
were too onerous would have to be adjusted and that actually you were laying the seeds
of the of the next european conflagration either it was unbelievably
short-sighted he was right so what would keynes make of europe today well
once again he might see strong countries dictating economic terms to the weak though this time it’s
strong countries like germany itself insisting that crisis-ridden nations like greece sign up to
tough budget cuts in exchange for emergency loans the newspapers show the depth of ill will
that’s built up as a result of the crisis you’ve got the germans talking about the greeks as
no good scroungers but in greece well there’s no more taboo anymore about comparing german leaders
to nazis the keynes might say they were harking back to the wrong war the tough conditions being
imposed on greece might remind him ironically the deal imposed on germany at versailles the
dominant thinking in europe at the moment is exactly repeating the mistakes i believe
certainly as far as greece is concerned as was made made at the end of the first world war there
comes a point if you visit upon countries things they can never deliver it will end in tears if
you look at what’s happening in the eurozone today riots on the streets of greece general strikes in
spain general strikes in portugal you can see well aren’t we just failing to learn
the lessons of history here if keynes could join me in berlin today he’d
surely appreciate the complexity of the crisis in the eurozone and he’d understand why ordinary
germans feel it’s time for greece to pay its own way but he also understood that imposing
too much austerity could be self-defeating i think he would have said let’s make weak
strong so then they can repay their debt as long as the debtor pays the creditor is happy
but as soon as the doctor gets into difficulties and if he is a very important debtor
the creditor has also problems because he won’t get his money back faced with
the crisis affecting the people of europe today keynes would undoubtedly have
come up with some solutions in fact years after the treaty of versailles
he’d unveil a plan for countries to work better together but first there was a more basic
question how to steer the economy itself to tame the economy to make it work for us keynes
realized you first had to understand how it worked and the tool for doing that economics was still
young in the 1920s but it had grand ambitions people hoped you’d be able to predict the
movement of economies like you could predict the movement of the planets keynes was drawn to
that idea as well but he came to the conclusion economies weren’t like planets
they were more like people you never really knew what they were going to do
next in fact he noticed the times when economies looked most predictable were usually the times
when things were about to go disastrously wrong it certainly felt like that in 2008 when the
global financial system imploded after one of the longest booms in history many claim
now to have seen it coming but at the time many more behaved as if the
good times would go on and on no return to tory boom and bust being too
sure about the economic future was another mistake that keynes had warned about 80 years
ago because he’d made the same mistake himself after resigning from the
treasury after world war one keynes retreated to the sanctuary of
his old college kings in cambridge he was a lecturer and later a bursa
looking after the college’s finances he had a special interest in probability
theory a branch of mathematics that tries to predict the future
from the evidence of the past when he wasn’t writing or studying keynes
was often betting on the financial markets he needed money and he thought
speculation was a good way to guess it but it was also a great way for him to test his
belief that probability theory and statistics could help you predict the way markets were
going to move he had very mixed results in his early years as an investor
kane sat in bed every morning pouring over reams of statistics about
currencies shares bombs and commodities when he was sure he’d worked out
which way the market would move this economic knowledge that he had
this great thirst that he had for numbers and statistics he believed i think that
he could define the delineate the business cycle and uh and as a consequence of that you will
be able to pick when was the right time to be in the stock market to own shares when was
the right time to come out of the stock market into say bonds government bonds in
particular or alternatively cash but none of kane’s elaborate calculations
pointed out the disaster just around the corner wall street before the crash in 1929 looked
a lot like the tail end of our market boom investors could see no end to the good times
armed with the very latest mathematical models they thought they had everything covered then the
bubble burst world markets collapsed and keynes lost money along with millions of others paving
the way for the great depression his confidence in predicting the future was gone he would have
bitterly reproached himself for not foreseeing the great depression but he came to the view
that the future is not like that that anybody who happens to predict it right is likely to be
doing so on the basis of luck rather than judgment kane’s speculating days weren’t quite over years later he thought he might have to store
hundreds of tons of wheat in king’s college chapel after a commodity trade went wrong but
he did change the way he invested and became a wealthy man he’d learned lessons about the way
economies work that we still struggle with today you can never get rid of uncertainty and that
economies are made up of people not numbers more than anyone keynes wanted economics to
be respected as a modern science but he knew it was never going to be a science you could
reduce to a set of equations iron predictions because economists were always going to have
one extra thing to deal with human nature if you don’t know about the future and
you’re trying to get a fix on what’s um taking place anywhere in time uh you you know
you would defer to the crowd you know the crowd is moving in a certain direction they must be right
you know the crowd’s buying what are they buying they must buy too the crowd’s selling i must sell
too and it’s it’s very animal it’s very heard this idea of herd psychology helped
keynes make sense of the economic bubble that blew up in the years
before the great crash of 1929 it can also do a pretty good job explaining
our own great financial crash in 2008 in normal times any economic textbook now or in
kane’s time would say if the price of something goes up people buy less of it if the price
goes down they buy more that’s how markets work except keynes realized when you have bubbles
then a different side of human nature takes over it’s the side that says oh house prices are
going up shares are going up i should buy more because the price is going to go up again which
of course it does becomes a self-fulfilling spiral prices go up and up and up and up eventually
the bubble will burst it always does in the years before 2008 did we forget what
keynes had taught us about heard psychology bubbles and the uncertainty of economic life
did the bankers investors politicians and the rest of us simply get too confident in
thinking the good times would go on forever i think inasmuch as people actually sat down
and thought about what were the risks what are the uncertainties uh then quite clearly a large
number of people were manifestly found wanting and of course if you don’t know what
you’re doing it’s not surprising that you end up being smashed to bits and
that’s precisely what happened kane’s big ideas that countries
shouldn’t beggar their neighbours that markets were unpredictable
all came out of his own experience but now the great depression produced his most
important idea yet an added real urgency to his need to tame the economy what he realized was
economies might sink and then not automatically float back up looking around the western
economies today that does sound a bit familiar in the early 30s the outside
world was deep in gloom with dole cues lengthening and factories
closing everywhere but kane’s life was blissful by now he was famous and he’d
shocked even his avant-garde bloomsbury friends by marrying a russian
ballerina up till then he’d been gay art books love affairs for keynes this is what
life was all about but he understood probably more keenly than his bloomsbury friends with their
inherited wealth that money kept the whole thing afloat you couldn’t have a civilized society
without a well-functioning economy when he was back in the real world on monday morning he could
see the british economy wasn’t working at all britain had been in a slump for years classical
economists said that if workers would just agree to wage cuts businessmen would invest again create
jobs the economy would revive but keynes disagreed he thought the way to recovery was being
blocked by pessimism or low animal spirits the big insight of keynes behind all of this was
that a market economy is not self-stabilizing and when you get very big changes in animal spirits
in sentiment where people who are producing to sell in the future suddenly worry that actually
maybe there won’t be the demand in the future so they stop producing to get out of that
low output trap can be very difficult kane’s realization that an economy could stay sunk indefinitely was a radical
break with conventional thinking my classical approach said the economy
would get better we just had to give it time but looking around seemed obvious to keynes
that it wasn’t getting any better and it seemed blindingly obvious why it wasn’t every time
someone lost their jobs and joined the dole queue well they had less money to spend so that
would mean fewer goods were bought probably mean more job losses you could get caught in
a downward spiral with no obvious way out now it seems equally obvious to us
today but back then it was all very new keynes thought the low animal spirits in the
business world were now infecting everyone in a radio broadcast in 1931 he
made a dramatic call for action the slump in trade and employment are as
bad as the worst which have ever occurred activity and enterprise both individually
and nationally must be the cure today kane’s followers have made similar calls
years after the start of the recession the economy still struggling to get back to where it was you
don’t have to be caned to see animal spirits alone whether his ideas can revive them is
another question kane’s insight that countries could just get stuck was probably his
most important contribution to economic thinking but he didn’t just want to understand
economies he wanted to make them work better he had plenty of advice for getting out
of a slump but the most controversial was that governments should spend money they haven’t got
to my mind the biggest argument in politics today is over whether countries have done too much
of that since the crisis hit or not enough keynes might have died almost seven decades ago but out here in the arizona desert his big idea
for getting the economy moving again lives on at gila bend they’re building the biggest
solar power plant of its kind in the world the site covers over three and a half square miles nearly a million mirrors will capture enough
energy to provide 70 000 american homes with clean power but for the people in this remote
region and for john maynard keynes probably the most important thing this plant will produce is
employment between my wife and i we probably spent two years out of work thank god not at the same
time but but we we took some very significant hits a company that sources our manpower tells
me they receive 300 resumes per day there’s there’s a lot of people looking for work and
the people who have jobs out here are very feel very lucky to have their jobs in effect
this plant is part of a vast keynesian experiment in the wake of the crash the u.s government
stumped up three-quarters of a trillion dollars for projects like this
one to create jobs and growth in normal times say the people who run this
site they would have raised the billion and a half dollars to get things going from
commercial banks but these aren’t normal times because of that downturn we had to look for
alternative sources of financing and of course in this context the the federal loan guarantee
program here in the us has helped out a lot in fact without that kind of of public programs
this plant could have never been a reality now we’re used to governments using
their cash to try to bring the economy to life in hostile environments
where private money is drying up but back in kane’s day it was
a much more controversial idea in the 1930s kane spent weekdays at his home here
in london’s bloomsbury district he wrote countless articles and pamphlets explaining how something
could and should be done to tackle this great depression in normal times keynes thought monetary
policy was the best way to help the economy you cut interest rates to encourage people to
borrow and spend more and companies to invest but when animal spirits were really low that
might not be enough companies might not see the point of making new investments people might
not want to borrow no matter how cheap it was that’s when keynes thought government did need
to make up the gap with more public spending kane suggested the government should
hire people to demolish south london and then rebuild it he wasn’t serious but he was
making a serious point if the government borrowed to create jobs people would spend more confidence
would rise and the economy would recover if he picked the right moment he insisted
the extra spending would pay for itself by producing higher tax revenues well of course
he did have enormous trouble trying to persuade the treasury the so-called treasury view that you
should borrow at the bottom of a business cycle but in economic terms what you need is more
demand in the economy and you can do that in the ways that cain suggested naive kensington
prescriptions of simply responding to depressions and recessions by raising the budget deficit as
if this had no effect on other economic no adverse effect on other economic variables i really
think are very dangerous policy prescriptions in the 30s keynes found that most british
politicians had a similar view high borrowing was dangerous he thought he might have a more
receptive audience in america after all he was now a celebrity on both sides of the atlantic and
the economic situation in america was desperate gross national product was down to almost 70
percent you had unemployment nationally at 25 in places like chicago and detroit unemployment
was up to 50 50 percent over over half the population unemployed president hoover’s solution
to the great depression had been spending cuts and tax rises he’d made an argument we’ve heard
others make more recently balancing the country’s books would create confidence and encourage
investment didn’t happen never has happened when you cut back government spending in a
situation such as a recession or depression demand goes down unemployment goes up and
it’s a vicious circle confidence isn’t restored when unemployment goes up and when
business goes down confidence is eroded hoover’s successor franklin delano
roosevelt had a different approach again echoing arguments made today he thought the
government should spend its way out of trouble this nation is asking for action and action now when keynes arrived in america in 1934 there’s no evidence that he persuaded
the us government to adopt keynesianism they were doing it anyway keynes had his one
and only meeting with president roosevelt by all accounts it didn’t go very well keynes thought
the president was no economist the president thought keynes was a bit too clever for his own
good but they did agree on the most important thing this was no time for government to sit on
its hands it was time for an historic experiment the new deal a vast program of government-funded
projects to put armies of jobless to work ever since it’s been the celebrated example of a
keynesian effort to boost flagging economies and there’s no more iconic
project of that era than this one hoover dam built across the colorado river
bordering nevada and arizona it was the biggest construction
project in the world i would call it a keynesian project absolutely the government stepped in with money built
a deficit and out of that came hoover dam which gave thousands tens of thousands
of people a new life money to spend armies of workers from across america tunneled for
five years through mile upon mile of mountain rock to build what was in effect a vast power generator providing electricity for huge swathes of
the country it primed the economy 165 million dollar investment which produced
billions in growth economic growth just eight miles away is boulder city
built to house the workers building the dam all these houses along these avenues are what we
now call dingbat houses they were the homes built for the workers they were put up to last through
the construction of the dam very quickly built but because people stayed which they
didn’t anticipate people would do families still live in them roger schoff runs
the town’s hotel he thinks boulder city shows how in a depression extra government spending
can trigger private spending and investment too adding to the economic benefits it’s
what keynes called the multiplier by the end of the second year they lived in
a town a full town fully operating town with retail stores and restaurants and medical
facilities and recreational facilities it happened in you know less than two
years critics of keynesian spending plans often say the benefits of fleeting and the costs
permanent but boulder city took root and thrived those who still live here say if it hadn’t been
for the new deal this would still be desert hoover dam might have helped the
local area but it’s actually a myth that the new deal ended the great depression it took a world war and all the extra
government spending that went with that finally to bring the economy out of the doldrums you might wonder whether a world war was really
the best test of kane’s arguments but ever since then so-called keynesian policies have been
what governments do when faced with emergencies the crisis of 2008 was the biggest
emergency anyone had seen for a long time when the global financial system crashed the
world faced the real possibility of another great depression governments have been preaching the
free market for years but faced with this economic disaster they reached again for the old keynesian
levers it was a classic keynesian response when individuals stop spending money and when
businesses stop spending money if the government also starts spending money at the same time
then what happens the economy basically crashes the aim was to boost confidence or animal spirits
by making it easier to borrow invest and spend interest rates were slashed to just half of one
percent the lowest on record we’re all now in uncharted territory then when interest rates
couldn’t go much lower the bank of england started pumping billions of pounds directly
into the economy it’s literally creating 75 billion pounds in the next few months to
get money moving around the economy again even vat was temporarily cut it’ll make goods
and services cheaper and by encouraging spending it will help stimulate growth in 2009 with the
global economy still tottering leaders gathered in london to endorse a keynesian rescue plan for
the entire world this is the day that the world came together to fight back against the global
recession i find it very hard to explain the collapsing world trade of over 15 percent
in six months between the end of 08 and beginning and spring 09 in terms of anything
other than an extraordinary collapse of animal spirits or confidence now some of that
was turned around in 2009 but by no means all even that great rescue plan of 2009 wasn’t
quite what it seemed for all gordon brown’s talk britain’s own stimulus plan was actually one of
the smallest because our government was already borrowing more than any other advanced economy so
even a keynesian prime minister like gordon brown didn’t think we could borrow a lot more his
successor thinks we should borrow much less we now have a prime minister who on one
fundamental point appears to disagree with keynes some of the normal things that governments can do
to deal with a normal recession like borrowing to cut taxes or increasing spending these things
won’t work because they lead to more debt which would make the crisis worse the only way out of a
debt crisis is to deal with your debts i suspect that keynes probably wouldn’t have used exactly
the prime minister’s formulation i think that keynes would have accepted at some point that you
have to head back towards a more balanced budget particularly if you don’t want to stack debts onto
future generations to me the remarkable thing is that countries like the uk that have a choice are
voluntarily putting themselves through austerity and almost certainly we will know we know what
will happen the economy will will get weaker unemployment will go up and there will be
an enormous amount of unnecessary suffering this argument will run and run
on both sides of the atlantic in arizona the massive spending program that built
this solar power plant and let thousands clock on for new jobs hasn’t been a miracle cure for the
u.s economy maybe the medicine didn’t work because the dose was too small or maybe the mountain
of debt weighing on most western economies means the keynesian route to recovery is
simply shut off we are in a stratosphere today that we just have not seen before
and maybe it’s fine but no other countries very rarely have seen these kind of debt levels
public private and other measures there are risks by the 1940s keynes was riding high his theater
here in cambridge was thriving he was back in the treasury helping finance the second world war
and his books were being hailed as masterpieces but he had one last big idea to pursue the
profound implications for the world then and now kane’s ideas for fixing broken economies had
now been tested but towards the end of world war ii he got a chance to leave his mark on the
entire global economy in a more integrated world he was more convinced than ever that countries
needed institutions to force them together make them cooperate the catastrophe after
world war one could never happen again the single most important trip to america that
keynes ever took was in 1944 to the exclusive resort of breton woods in new hampshire he was
joining delegates from over 40 different countries all charged with laying the foundations
of a new post-war global economy they wanted to rebuild the system
you know not just from the war but from the great depression the
financial system had just been destroyed the economic chaos of the 20s and 30s was
largely responsible for the war keynes believed countries had all focused on charting their
own path without very much thought for what was going on around them the world had paid a
terrible price for that failure to cooperate there was a real determination among uh officials
both in london and in washington that we couldn’t do this again that we we had to fix the world’s
economy that we had we couldn’t go back to the to the kind of economic crisis we’ve had before
because we couldn’t afford another world war as representatives from across the world
gathered here at mount washington hotel elsewhere there was still ferocious fighting
but once the war was over keynes knew for the world economy to prosper countries would
need to work together much more closely only two delegations at the conference really
counted kane’s british team and the americans both agreed that there should be controls to
prevent currencies fluctuating too wildly against each other they agreed too that institutions that
later became the world bank and international monetary fund should be there to foster
trade and growth in poorer economies well the big gain from it was the recognition
that countries need to work together to resolve their macroeconomic problems it’s
just not enough to pretend that you can do it as an island you may be an island
geographically but you’re not economically but on one crucial issue keynes failed the
americans were adamant that rich exporting countries like them shouldn’t have to spend
more and export less to balance world trade it was weak countries with big
trade deficits that had to shape up if everyone at bretton woods had accepted
kane’s logic that it takes all sides to keep the global economy in balance the
world today might be in a lot better shape this old east german television tower
is a symbol of reunified germany but these days feelings of
european unity are in short supply ministers here in berlin want struggling eurozone
countries to impose tough measures to get their economies into shape the stronger countries have
been willing to help by offering massive loans but i don’t think keynes would
have thought that was enough keynes thought for the global economy to work it
had to be a two-way street so the weak countries that had run up a lot of debt with the rest
of the world they did have to become more competitive learn to pay their way but the rich
exporters well they had to do their bit as well spending more on other countries goods
and exporting less becoming a bit less competitive now that’s a bit of keynesian advice
that doesn’t go down well here in germany at all if you say germany should export layers to become
less competitive the popular words that’s that’s mad why getting as weak when others are already
weak and certainly that’s the wrong conclusion there are signs of movement on
germany’s side of the street domestic car sales have been going up but exports are still a central plank
of the country’s economic policies and car exports are up by almost
a third in the past two years german consumers have been spending more lately but not enough to provide much of a selling
opportunity for struggling countries like greece that’s a very popular approach telgem
private household please spend more don’t be so greedy with your money but i think
that’s that’s wrong because people look at their income and they say i can’t afford simply and
that’s true i mean we have had very weak wage increases during the past years and that’s the
point where you have to have higher wages and these higher wages would certainly spend
and then german consumption would certainly be much stronger than it was in
the past and that will help us memories of hyperinflation
are still raw in germany few want to put their hard-won economic
stability at risk for their weaker european neighbours the divisions between
countries at a global level are even clearer leaders pay lip service to kane’s dream of a
truly coordinated global economy where strong work with the week for the benefit of all but
there’s little sign of them actually doing it i think keynes would look at our world the
troubles in the eurozone the banking crisis so it was a pretty scary place without many of
the checks and balances that he argued for at bretton woods but he’d also say he did say that
a really global economy was tremendously exciting with huge potential to improve all of our
lives if governments could only work out how to put into practice that basic insight
that he kept coming back to we really are all in it together sure it would be great to have
better multinational institutions that keynes was a pioneer in that he was a big believer and
i think in order to fix the international financial system that would be very helpful and
maybe somebody with the sort of magnetism and gravitas and stature of keynes could somehow
catalyze that but he is a rare person indeed keynes left an extraordinary legacy he didn’t
just transform economics he changed the lives of billions of people around the globe there
aren’t many people born in the 1880s whose name you hear as often as keynes in current
debates his ideas that countries shouldn’t beggar their neighbors that economies were deeply
unpredictable could get stuck in slumps i’ve changed the way we think about the world
but what can keynes actually do for us right now back in cumbria it’s clear what keynes has done
for them government intervention will help keep pirelli’s tire factory open and provide a lot
of employment in the political mainstream there aren’t many who challenge kane’s basic message
you can’t leave economies to drive themselves keynes was a very dominant force in the 20th
century and my guess is he will remain a dominant force in the 21st century which is why
i think he will go down as one of the greatest economists the world has produced 80 years ago
building this dam eased the great depression with the government borrowing more cheaply
than ever before you might think the case for new deal type investments was equally
strong today but given the sheer volume of public debt no one can promise that piling
on more borrowing will be a miracle cure what is thought of as a typical keynesian solution
to get more debt borrow money spend spend spend and cut taxes that needs to be used more
judiciously here because at the end of the day you’ve got to get rid of this debt this is
a very long haul i don’t think anything just boosts your way and zooms your way out of
this there there just is no magic bullet and what have cain’s final big idea
that countries are all in it together since bretton woods the world has grudgingly
accepted that we have to cooperate to prosper but we’re struggling to make it work in
practice he’d be worried he’d be very worried he’d been very concerned about
the growth of inequality worldwide he’d be very concerned that there was
return to begin my neighbor policies i had no doubt that he would
be warning of regional war and all its dangers he’d be he’d be very
frightened uh that the circumstances that led to war in 1418 and 3945 were on a slow
burn basis unfolding in front of us again maybe the biggest thing keynes could do for us now
would be to remind us of the traits that guided him all of his life imagination and optimism
he came along and was willing to examine these profound problems in ways that no one had done
before his great legacy is that fundamental belief in humanity that fundamental belief in
the ability of government and of society to to dedicate itself to to helping those
that are less fortunate and need our help in 1946 kane suffered a fatal heart
attack in his beloved sussex downs just 62 he left a legacy that changed the world but he also left an enigma he thought we
should try to tame the power of money to make it work for us but he also taught us that
economies were fundamentally unpredictable it’s a contradiction we’re
still grappling with today more than anyone keynes paved the way for
activist government he said you could and should make the world economy work better the generation
that rebuilt the global economy after the war really were children of keynes but when you
read him today it’s another equally powerful message that comes through about the great
unpredictability uncertainty of economic life you should never think you’ve got it
covered that you’ve abolished boom and bust that’s the great paradox the man who did most to
make economists arrogant in their capacity to bend the world to their will also gave them or should
have given them the best reasons for self-doubt next time on the power of money
kane’s great adversary friedrich hayek who looked at the same facts and
drew exactly the opposite view the market needed to be set free and government
should back off the open universities produced six one-minute animations to explain some of
the key economic ideas that affect all of us so if you want to learn how to spot an invisible
hand or other secrets of economics go to bbc dot co dot uk slash masters of money and
follow the link to the open university can chemicals make us
irresistible to the opposite sex james may reveals all you need to
know about chemistry next on bbc hd you
